Supply Chain Insider

How a Commodity Sourcing Forecast Sets the Stage for a Top-Grossing LTO

03 | 13 | 2019 |
Articles

The ingredients for a successful LTO are hardly a secret: a high-quality menu item, at the right price, with the right food cost, plus service execution that provides an awesome dining experience. But one less-known factor in LTO success is the way supply chain forecasting helps make these elements align. Here’s a textbook scenario from an actual promotion that illustrates how these interlocking factors fit together.

Supply Chain Challenge: A national, quick service restaurant chain needed a fresh take on its annual Lenten season promotion. The LTO development relied heavily on supply chain management’s research into the future availability and cost of a custom-cut and sourced product that would deliver a “high quality, high value” seasonal menu special and dining experience.

Advance Work: The chain’s marketing and culinary teams wanted a new twist on its traditional Lenten entrée. Based on a commodity cost/availability trends, a preliminary forecast was prepared 40 weeks in advance based on multiple protein options that the brand’s culinary team had identified as suitable for anchoring the LTO.

The preferred option was for thick, hand-cut Pacific cod filets that could be shipped frozen and then prepped, battered and cooked at restaurant sites as part of a meal bundle. The chain also established preliminary base food and other component costs and target promotional pricing as part of its planning.

Sourcing Evaluations: Because cod and many other fish species are wild-caught, not farmed, buyers could only work with directional pricing forecasts so far in advance of actual seasonal harvests. But, using these for guidance, they investigated sourcing opportunities for the preferred protein item as well as alternates that could be used in the case expected harvest supplies were not available at the price point or in the volumes needed.

As weeks passed by, supply chain specialists also worked with top seafood suppliers, outlining specs and prices for the chain’s LTO application, all the while tracking the original forecast against developing price and availability data for the specified items. The advance work also included evaluation of suppliers and facilities that could provide hand-cutting and fabrication/packaging to the chain’s cost and quality specifications.

As sourcing opportunities were firmed up, a primary supplier of the cod and, in this case, an opportunity to obtain the needed portions and volume of prime cod loin at an attractive price point was identified. Representatives of the chain’s culinary team then visited the selected processing plant for a week, evaluating samples of the proposed final product that would be packaged and shipped to stores.

Contingency Planning: As part of the initial sourcing research, a secondary supplier was identified as a backup source in case LTO demand ended up exceeding forecast supply needs. An alternate seafood protein was also identified as a fallback center-of-the-plate ingredient in the event of unexpected supply shortfalls. Finally, contingency plans were made for how the chain would use any excess product that might be left over after the promotion period ended.

Execution: Once sourcing arrangements were established, the chain’s marketing and culinary teams worked together to develop operational procedures to produce the finished item at unit sites. Beta sites tested product samples to ensure thawing, prepping, cooking and holding could be executed effectively by typical unit staff.

Meanwhile, marketing developed the descriptors and details needed to differentiate the offering from that of competitors and for timing and launching a promotional campaign. The latter emphasized the cod’s quality, value, custom cut and onsite battering and preparation. The supply chain team continued to work closely with its Alaskan seafood suppliers to finalize volume/pricing commitments, coordinating with the brand’s finance operations.

Finally, as the launch date approached, unit management was apprised of final publicity and advertising plans and locations stocked with promotional support point of sale materials. Close communication with distribution centers ensured that adequate supplies were available regionally and ready for delivery in advance of the LTO launch.

Results: The chain experienced system-wide sales gains year over year, with the best Lenten season promotional results in 12 years.

Learnings/Observations: We asked Jeff Franzblau, a SpenDifference senior director of procurement, for his observations in terms of the most important lessons to be learned from foodservice promotion executions like this one.

“Supply chain coordination throughout the entire process is key to making LTOs like this one work effectively,” he says. “Advance and updated forecast information guides culinary and marketing planning from the outset as well as sourcing arrangements and commitments along the way.

“Also, an important part of advance sourcing is to look at how different processors are utilizing the raw commodity in question, and for opportunities to obtain cuts that have a higher quality, a lower price or that meet some other criteria advantageous to LTO applications,” he adds.

“You try to play against and complement other demand for the same commodity that the supplier may be dealing with. At the same time, buyers need to work with culinary and finance to make sure sourced product meets the established specification, availability and price targets. Contingency plans are critical in case the unexpected happens.

“As a chain closes in on the final weeks before an LTO, real-time communication among all the players in the supply chain—from source to processor to distributor to stores—is essential. There needs to be constant, real-time updates in terms of how actual demand is meshing with forecast demand, and how that affects inventory in the channel. Chains that do all those things well can look forward to results that regularly meet and exceed expectations.”

Are you looking to unlock increased LTO potential? Contact us to see how leveraging deeper supply chain connections can help.